Triple play rally!

What's a triple play rally and what are the ingredients to such?  Well, in our view it's a combination of 3 players getting into the act!.  We clearly had that today!

1- Recent week worth of trading was a week of lower highs, lower lows.   This is a clear sign shorts were starting to press fresh new positions.   Every time there was a blip upwards, the shorts would press positions lower and lower (thus lower highs) as they were becoming a little giddy after not having this opportunity for weeks.   So what happens when this pattern of lower highs/ lows gets busted over ~896 today, including holding overnight support at May 4ht lows.    Yep, you get them shorts scrambling to cover once again.   Ingredient number one is short covering.  (See alert comment around 2:45pm before the next rip up to know where we think we’re probably going now).

2- We’ve talked a lot about 5% SPX correction  as a measuring stick,  it also coincided with 20ma and a great place to find an underlying bid.   Look back to the April's 5% dip that brought out buyers, eventually leading to 930 highs.  Today,  we got this sidelined money  seeing this market doesn’t want to break 20ma and use the 5% as reason enough to get in. 

3-  The sidelined money (longer term $) + short covering equals momentum money coming out   to play and only adding to the fury of buying.    Last week as everyone was saying get into the "safety trade",  we said we’d hang up the phone on our clients if we were brokers asked to switch to such a trade going forward.   Clearly what we saw today was a rush to 'higher beta stock and groups'  as money from the safety stocks- groups was a source of funds to switch in higher beta’s once again.   No better sign of this was in Casino- lodging stocks.   Last Fridays alert buy in to WMS  was timely and others like HOT, WYNN, LVS  and the more spec' MGM  provided big gains across the board.

Of course in order to have a triple rally,  you need a catalyst or 2 …to wake the sleeping giants from their 'quiet period' and we pointed out a few we were looking for.   You probably did not see ours mentioned anywhere as a potential catalysts to reverse this market in the upcoming week. 

1) One part for the banks- brokers was our underlined, determination to repay TARP.    Only near the close did the headline finally come across that GS-JPM-MS  have applied to repay 45 bln in TARP.  STT applied earlier.  If you think our mkt went up all day because of Indian mkts and not the fact this `determination = apply` was making the rounds all day with institutions types,  you’re greatly mistaken.    *Also importantly was Geit`s saying he doesn’t want to see executive comp. limits.    This always makes Wall street happy.   *We also think Barron’s negative article on Treasury’s was a lift to equities as this says go to riskier assets such as stocks!. 

2)A wake call for Tech was the possibility of the what comes out of the upcoming tier 1 tech conference.   This provided some positive eco` comments, such as NVDA`s,  'market bottomed..product demand growing and improving from last 2 Q`s'.    Tomorrow, we`ll hear from companies like NOK, IBM, EBAY ,  we also have April Q reports coming from HPQ BRCD ADSK soon to add more clarity to trends after the official Jan thru March earnings season.

3) We even got a 3rd catalyst from earnings side of things.   We pinpointed HD last week, but LOW`s gave enough in a positive beat and raise to guidance before HD`s report tomorrow.

Points 2 and 3 is something shorts are not really expecting as they keep saying earnings season is over with.  They are missing the point these April Q end reports can do some serious damage to their thinking earnings season is done with.   These give a glimpse to what is happening after March and if its good,  it points to a better than expected Q2 reporting season.

We had a good NAHB number today, tomorrow we get what could be as crucial to markets mood as Retail was last week in the form of housing starts and building permits.

DJIM #25 2009

In last weekends, DJIM #24,  we finally conceded to the fact that , “ We need to respect the probability of a profit taking correction finally from those participating since March to allow latecomers a chance now to get in”.   What we didn’t and won’t concede in 2009 is ..“we are still very much bullish longer term on this market”, even though we thought we lost momo`the previous week.

As we come to the end of 1H, this upcoming week,  we look forward to a climate change for risk appetite in equities continuing as the recovery takes us out of recession with manufacturing and financial systems rebounding.    The landscape is definitely changing,  but after a 50% decline with many individual accounts bloodied it takes more than 3 months to rid investors of fear and regain confidence.   What’s occurring now is natural in the process of a recovery.   It is called 2nd guessing,  especially those green shoots as they are known.    Instead of looking at obvious fundamental changes, many are turning to the , ‘what if’ mentality.   This the ‘watching life go by’ way of mentality crowd.   Many are already suffering this from SPX 666 and will only punish themselves further if not looking for another ~20% from this market in 2H 2009 at some point.    Last week,  we got what is now is a 4th consecutive correction of ~5% off SPX highs holding during this rally without what should be sooner than later, a meaningful correction of around 10%.    So….is this the one that declines further or are we going to be questioning the same thing if/ when we begin a 5th consecutive 5% ?.     After, seemingly holding above 200MA, we are beginning to doubt the current correction will allow latecomers a chance to get in.    One thing,  we definitely believe is those latecomers will NEVER be given an opportunity to get in the 600’-700’s, maybe even below 850SPX.   Those in the market will never allow such a gift.   Human ..fundamental nature…say you buy a home and keep putting money into over time.   You’re never going to let someone buy it at your initial investment price are you or lower (unless of course stuck in the recent ordeals).  Well,  same in this equity market,  we won’t be letting the latecomers into this neighbourhood so easy.  It’s gated now.    They’re going to buy this market at a premium!.   Maybe they are getting the message as current inflows into equities are surpassing those at 2003 lows and MF inflows have doubled over the prior 4 week trend.   We`re not talking chump change (9bln vs. 4ln)

Here’s an idea of what may be happening that will not allow a meaningful correction just yet.  We are having an orderly quite transfusion.   A transfusion where those in market for weeks are doing some profit taking, but the selling can’t gain traction as the Bears hope because there is sufficient inflows taking the supply.     In essence,   this is why our premise from March of an underlying bid prevailing keeps on motoring.    Those that have been following the market with us for over 5 years,  you know in the good ole days,  we always said the market will not go down further if declining at that time due to EPS just around the corner.   This theme is also possible now in a 5% correction as the upside risk remains of corporate growth here and there.    We are also up against what could be and actually should be window dressing for end of Q2,  especially with a 5% decline already in place for a buying opp’ for managers.   This all works unless higher powers used the 956SPX early on in June as a time to cash in early.   A game of cat and mouse here as we‘re stuck in June gap resistance last few days.   Simplifying,   we are fine unless we close below 200MA.   To be honest,  we’d accept a terrible and unexpected headline over the weekend to see how strong we are at 200MA around 900SPX.   This would give either side (Bulls-Bears) a belief system.   Bulls..“nothing can stop us now” and the Bears a belief in finally pressing shorts with confidence(maybe).

To simplify more, we’re sticking to this Q’s plays, mostly EPS or story wise until new babies are born in the upcoming Q.   Even though,  the big boys like RIMM may have EPS cooked in,  it should not stop the risk appetite for newborns in the micro-small cap world.    Keep those STEC PWRD CMED ’s upside guidance coming!.   Speaking of,  you might have noticed strength on Friday anything China  related in any sector outperforming, besides PWRD, CMED.   See Shadow list link on site..EJ ADY STP.    Also,  noticed some risk was coming back into our Casino/ lodging... ASCA WYNN PENN HOT LVS WMS  plays,  so look here as well starting next week for possible continution. ( we think these C-L`s are a group that may move best into their earnings given recent slide).    If we see the same reaction (RIMM) going forward....”cooked in..sell news,” in micro/small cap types off earnings,  we’ll now it’s time for a real market breather,  but we doubt it as the risk appetite back for such plays should continue in a recovery trade.    Other than individualé group plays above,  we always have banks- brokers/ commods sector  rotation to take advantage of on any intraday/ short term rallies to dive into for a trade.

Buy stops kick..

Even before the first influential EPS report this week,  the storyline started to change premarket to a corporate driven one by MW's CNBC appearance, upgrade to GS-bullish preview of bank earnings.  We just said the market must first jump over a hurdle this week with the Banks-Brokers reports and today it got a flying start as it jumped a couple of hurdles at once.  This is good as there will be some messy reports from the group upcoming to not let this short covering move get too far out of hand, too quickly.

Still, this was not what really caught our eye!.  What was equally or even more important was the market's and groups ability to shake off and not wallow in the CIT  unfolding debacle in front of it's eyes.  This CIT liquidity crunch has all the potential to remind the market participants the Credit crisis is not really over.  Will this giddiness last, will the market continue to brush this off or start to worry about this and/ or other potential pitfalls.   As swell as today was, we have to monitor this star crack from becoming a big crack on the markets windshield.   Sentiment can change quickly, we just hope we can move forward from the same issues that broke the market before and concentrate on earnings. The market seemed confident in the gov't solving this problem for today.

At the open,  the CIT fiasco had a tug of war with Banks- brokers news flow, but managed to stage a bounce off lows in the 200ma range.   Last week, we pointed out in an alert to watch SP futures at 884.25 levels for a possible rip due to what we saw as a potential kick off of buy stops on a future re-test. 

As you can see by the ES and SPY charts (by volume spike) below this is exactly what happened.   If you weren't following our lead and or just blinked, you missed the DJIA pop 50-70pts in seconds as these buy stops- covering ignited a market breakout all the way to 901 by close.  At 894, we also put to rest the H & S formation for the time being.

Also important today was some individual stock musings (many from our shadow list) that included earnings, upgrades, estimate revisions and contract news to set a positive tone going forward.  Some include, PHG for earnings,  BBY ROK KFT GOOG upped and/or raised,

DJIM's …GS ARUN PENN LFT raised and-or upped,  STEC  28mln contract, WMS  (Ohio legislation news), helped it make 10% (low 30's to low $33's) since last weeks alert.

Well, it seems waiting with powder for "July 13th or so" wasn't such bad idea recently. Still, we've got a long ways to go (99%),  hopefully, full of good surprises as today.

''I go 1st..you go 2nd....and than..

...I go again!".  That's the 'Bull' transcript according to our DJIM spies.  The Banks- Brokers start the rally in March, the Techs follow and than snooze after MSFT earnings and than the Banks- Brokers take over again!.  The question is if the Banks- Brokers are really an impatient bunch and want to get this next leg started a little early?...

So..a few ‘ bullet’ points on market action , it’s quite simple…

We’ve been saying, including last before Monday‘s move over 1K, ….”we don’t plan on occupying a level over SPX 1000 for too long this summer, we prefer to make a strong bid to occupy the 1000++ for good in the latter part of the year when a powerful growth spurt will finally be evident to all, including those who are still Bears now.  We think rotation into and leadership will be from the Banks-Brokers later in the year to signal the next move”. 

Guess what’s happening?…In just a few hours this week,  we’ve had global PMI numbers that give credence to a ‘powerful growth spurt’ in 2H2009, which is now scaring away the shorts from pressing new positions.  Shorts/ Bears don’t want to get run over by the growth train money flow that is entering the market just now and we are seeing rotation into the Banks- Brokers occurring the last 2 days (XLF new highs)!. 

Don’t get us wrong,  we love the idea to go higher this summer, but this is a tad early in our view if we want to see and think we'll see in '09 (SPX1100-1200)!.  We have another 15-20% leg from the SPX to use up later this year, we feel.  But, talk about exuberance now!.  Market is acting like 50% is not enough off lows, let's go for 70% now without a pause.    The question is.. will we have to move up the dates of another leg up in our playbook.     It's hard to imagine an overshoot late summer-early fall,  but as we said these are not normal times we've been through, so upside risk remains for shorts and those not participating yet.    As long as we avoid, most notably an overshoot gap open and/ or spike soon,  it would help avoid the beginning of a good size reversal.  (1014 was the level we noted here as possible 1st R, hit ~1007 today).  If we keep inching higher, it will be beneficial for higher highs into late August and back to skool days.    So far, once again the market is showing and underlying bid and resiliency even as we hover around 1k, we watch the A/D line on the NYSE closely. 
 
Also today, we had some life in the mid-small caps and earning reactions were very good (WMS CTSH EMS ).  If this continues we'll feel much better that this is not a short term topping out process as discussed yesterday. 

This is a telling week, just keep an eye on this bank- broker rotation follow through, renewed strength in mid-small continues along with a healthy AD line to power this market higher or not.